Mr. I - Head of Management Control System at one of the biggest express and courier services companies in Indonesia.

Session Date (Local Pulse): December 1, 2022

The logistics and supply chain industry has been becoming more and more attractive to investors in recent years due to the surge of demand for couriers because of the Covid-19 pandemic. The sudden rise of e-commerce, especially, coupled with capacity constraints and congestion in both air and ocean transport highlighted the relevance of logistics resilience.

One of our Advisors, Mr, I, was able to share his insights about the logistics industry, specifically in investing in the industry.

What is the number one obstacle in investing in the logistics industry?

Mr. I explained that the biggest challenge when investing in the logistics industry is the business permit. This is due to the fact that in Indonesia the process of getting a permit is convoluted and sometimes requires under-the-table means. Even though the transparency when getting a permit has become better in recent years because of the existence of PTSP (Pelayanan Terpadu Satu Pintu), especially during President Joko Widodo's era, the monitoring system can still be improved. Mr. I added that there is also OSS (Online Single Submission), a permit system that integrates permits regionally and centrally in order to facilitate business activities in the country. Unfortunately, there is still some overlap between OSS and PTSP because the state administration system is regional autonomy, thus the tax or permit management is still regional.

What is the key driver when making a decision to invest in the logistics industry?

Mr. I elaborated that there are several factors when deciding to invest in the logistics industry, and it depends mostly on what is going to be built. For example, if you want to build a warehouse, one would need to consider the infrastructure such as how to connect the warehouse to other warehouses as well as road access. Other factors to consider when investing in building a warehouse are the contractor and raw materials needed to build it, and also whether the utility like electricity and water is consistent. Mr. I provided another example: when building an agent branch office, one would have to think about whom the target market is, the number of population, and the potential for small businesses. All in all, investing in the logistics industry hinges on what is going to be built, but nonetheless there is one factor that determines it all, which is access.

What is the situation for new players in the industry, and where do they get their capital?

According to Mr. I, the majority of new players get their capital from overseas, either by venture capital (VC) or borrowing. The key to logistics is the infrastructure for the last mile, and if the infrastructure for it is weak, the business will collapse. Mr. I. explained that such is the case with many new players, and that their revenue might be large, but it is not necessarily profitable. This is due to the fact that they don't focus on developing the infrastructure for the last mile. 

Is there something to improve from the government when it comes to the logistics industry?

In Mr. I's opinion, the access for the infrastructure has been quite excellent in recent years, specifically the land and sea access but not the access by air. He explained that Indonesia is an archipelago with thousands of islands, and that the air cargo is still dominated by the oligopoly market, which results in a very costly air waybill. Mr. I suggested that the government could build an air cargo company that can reach every nook and cranny of Indonesia with strong working capital in order to compete with the oligopoly.

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About Mr. I:

Mr. I has more than 5 years of experience in the courier service industry. For the past few years, he was in charge of the financial operations of the company, including handling payment requests nationwide as well as designing the company’s financial system blueprint. He is now handling the data analytics for various services provided by the company. Since his work is intersecting with all departments, he is knowledgeable about land freight and air freight shipments such as the vehicles used and selection, usual route, in-demand products being shipped out, pricing, as well as challenges of each service from first mile to last mile. He is well versed in delivering perspectives based on the operational and business data analysis.

Talking with him will also give you insights into how logistics companies are thriving by optimizing  warehouse capacities and routes. Overall, he has a robust understanding of the logistics sector in terms of financial aspect and cost structure, transportation management, strategic basis, market landscape, and demand pattern formulation.